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Michael porter perspective on strategy

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Michael Porter on Strategy

Michael Porter on Strategy

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  • 1. What is Strategy? The Michael Porter Perspective Michael McDermott www.strategycapstone.ning.com
  • 2. Who is Michael Porter? • He is a Harvard Business School Professor • He is regarded as “the” guru on business strategy • Profile of Michael Porter McDermottm1@nku.edu 2
  • 3. What is Strategy? • Strategy is competitive position • And competitive position demands determining the company’s choice of generic strategy • It is essential that you understand this basic but vital concept of generic strategy McDermottm1@nku.edu 3
  • 4. Establishing Competitive Advantage • A company can outperform rivals only if it can establish a difference that it can preserve • It must therefore: 1. Deliver greater value to customers; or 2. Create comparable value at lower prices; or 3. Do both McDermottm1@nku.edu 4
  • 5. Some Key Questions in Strategy Development Who/what are we? The focus here is on choice of Generic Strategy – Where do we want to be? The focus here is on choice of Generic Strategy – Why do we want to go there? The focus here is upon strategy drivers – • • • • PEST Analysis Competitor Analysis Market Analysis Internal Analysis How will we get there? – The focus here is upon choice of Grand Strategy McDermottm1@nku.edu 5
  • 6. 1. Who/what are we? This is our competitive position – some would argue that this is the essence of our strategy McDermottm1@nku.edu 6
  • 7. What is Strategy? Competitive Position Strategy McDermottm1@nku.edu 7
  • 8. What is Competitive Position? Choice of Generic Strategy Competitive Position McDermottm1@nku.edu 8
  • 9. Effectiveness vs Efficient More Effective •Greater value •Higher unit prices More Efficient •Lower unit costs McDermottm1@nku.edu 9
  • 10. Competitive Strategy is about being different! McDermottm1@nku.edu 10
  • 11. Determining Strategic Position • Choose a different set of activities • Perform similar activities differently Activities • Or perform different activities Value • Deliver a unique mix of value McDermottm1@nku.edu 11
  • 12. Nature of Strategic Positioning • Means performing different activities from rivals or performing similar activities in different ways • Competitive advantage requires developing a distinct strategic position McDermottm1@nku.edu 12
  • 13. Choice of Generic Strategy Internal Considerations External Considerations • Do we compete on low cost or differentiation? • What is our target market? • What industry do we compete in? McDermottm1@nku.edu 13
  • 14. What are the Generic Strategy Options? Low Cost • Niche – narrow market focus • Mainstream – broad market focus Differentiation • Niche – narrow market focus • Mainstream – broad market focus McDermottm1@nku.edu 14
  • 15. McDermottm1@nku.edu 15
  • 16. Hyundai Genesis BMW Volvo Porsche Generic Strategies and the Luxury Car Industry But you may decide that BMW competes in the luxury car market. McDermottm1@nku.edu 16
  • 17. Choice of Generic Strategy: Abercrombie and Fitch Internal Considerations External Considerations • Differentiation? • Agreed? • Is it the clothes market? • Or designer clothes for mature adolescents and young adults? McDermottm1@nku.edu 17
  • 18. Choice of Generic Strategy: Abercrombie and Fitch The Clothes Market The Designer Young Adult Market • Then A&F competes through focused differentiation • Then A&F competes through differentiation McDermottm1@nku.edu 18
  • 19. According to Porter, Strategy involves trade-offs. The essence of strategy is choosing what not to do.
  • 20. We now get position. But What is Strategy?
  • 21. Strategy is the creation of a unique and valuable position, involving a different set of activities.
  • 22. “Commonly the threats to strategy are seen to emanate from outside a company because of changes in technology or the behavior of competitors. Although external changes can be the problem, the greater threat to strategy often comes from within”. Michael Porter
  • 23. Porter’s Focus is Competition • Porter’s perspective is all about establishing a competitive position that is different from rivals • Either being the cost leader • Or offering differentiation McDermottm1@nku.edu 23
  • 24. Defining Our Present Competitive Position This is represented in our Mission Statement McDermottm1@nku.edu 24
  • 25. 2. Where do we want to be? This is future-oriented and is addressed in our Vision McDermottm1@nku.edu 25
  • 26. 2. Where do we want to be? 1. Do we wish to change our Strategy or our competitive position? • Or simply apply similar more widely? McDermottm1@nku.edu 26
  • 27. Changes in Competitive Position: Walmart in the USA Status • Today you think of Walmart and you may think low cost • A few years ago, you would certainly think low cost Evaluation • Walmart’s sales in the USA were declining recently and this was allegedly due to the company’s weaker commitment to low costs • This company may wants us in the future to think ‘green’ and ‘healthy’ McDermottm1@nku.edu 27
  • 28. Changes in US Competitive Position: Toyota 1960s • Focused Low cost 1980s • Low cost 1990s • Differentiation (introduce Lexus offers focused differentiation) 2000 • Differentiation McDermottm1@nku.edu 28
  • 29. Changes in Competitive Position: Singapore Airlines 1960s-1970s • Differentiation based on Asian service – Singapore girl • Low crew/passenger ratio due to low labor costs 1980s • Differentiation based on above • Plus most modern fleet of aircraft 1990s • Differentiation based on all of above • Plus best in-flight entertainment, cuisine etc McDermottm1@nku.edu 29
  • 30. Changes in Competitive Position: Hyundai, Samsung, LG 1960s-1970s 1980s-90s 2000s •Low cost •Transition •Differentiation McDermottm1@nku.edu 30
  • 31. Changes in Competitive Position: Haier (Chinese producer of white goods) 2000s 2010s • Low Cost • Transition to differentiation • Has it worked (as per Samsung, LG, 2020s Acer, HTC)? McDermottm1@nku.edu 31
  • 32. 3. Why do we want to go there? 1. Change(s) taking place in the external environment? – – – The macro-environment The competitive environment The market 2. The internal environment – i.e. Companyrelated considerations 3. Or combination of 1 and 2 above. McDermottm1@nku.edu 32
  • 33. 4. How will we get there? • Organic growth – the company growing through its own development on new products/services; – Market Consolidation – Market Development – Diversification • External growth – – – – Mergers and Acquisitions (Married) – very costly Joint Ventures (Engaged) – less costly Alliances (Dating) – no ownership stake, just partners Licensing (social acquaintance) – low risk, payments based upon market success McDermottm1@nku.edu 33
  • 34. 5. What are our main options in terms of Grand Strategy Choice McDermottm1@nku.edu 34
  • 35. Choice of Grand Strategy and Ansoff’s Matrix McDermottm1@nku.edu 35
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